April is National Financial Literacy Month, and that means it’s a great time to reflect on your finances, and think about what we can be doing to improve financial literacy for our children, and for others around us.
One of the best places to start when it comes to improving your finances is the basics.
It seems unnecessary to go back to basics; after all, many of us feel like we have the basics down pat. However, no matter how advanced we think we are in the world of finances, it never hurts to have a refresher on the responsible use of money.
Here are some of the basics to get back to during financial literacy month:
Live Within Your Means
The first rule of personal finances — and one that is also the most basic — is to live within your means.
Every month, you should earn more money than you spend. There should be a little left over at the end of the month, even after you set money aside for savings and other important expenses for the future.
Living within your means, though, is harder than it seems.
Look at how many people are in debt, and how many people routinely exceed their incomes. When you consider this, it becomes pretty obvious that more consumers need to practice spending only money that they have, rather than constantly borrowing in order to keep up with your spending.
Save for the Future
While you are living within your means now, you also want to save for the future.
Preparing for what’s next is a vital part of your financial literacy journey. Some of the ways that you can save for the future, creating a situation that allows you to be prepared for what’s next, include:
- Contributing to tax-advantaged retirement plans
- Building up an emergency fund so that you are prepared for unexpected expenses
- Looking ahead to planned expenses and saving for them a little at a time
You never know what’s coming, and savings can help you meet insurance deductibles, as well as pay for some of the expenses that come with life.
Saving for the future is a major part of creating your own financial success, and your savings plan should probably include some sort of investing. The easiest way to do this is through a retirement plan. You may even receive a tax advantage that helps you maximize your ability to save for the future.
Protect Your Assets
Many of us forget to protect the assets we already have. This is most commonly done through insurance.
While it can be unpleasant to pay insurance premiums, it’s still a good idea. You make regular payments, and you are covered in the event of a problem.
Imagine coming up with the money to pay a hospital bill, or to have your car fixed after an auto accident. Chances are, it would be difficult to come up with the money you would need. It could bankrupt you.
Insurance acts as a protection.
You pay your premiums, and when something happens, you pay your deductible and the insurance company covers the rest. The result is that your hospital stay becomes more affordable, and you can make repairs on a home damaged in some way.
Also, don’t forget that liability insurance can provide additional protection for those who are concerned about lawsuits draining away their wealth.
With insurance, your assets are protected, and so are you.
Set Some Priorities
Don’t forget to set some priorities. It’s easy to overlook this as part of financial literacy, but it’s really a vital part.
Indeed, you can improve the way you spend money when you consider your priorities. Decide what’s important to you, and make a commitment to put that spending first.
Too many people approach their finances with a style that doesn’t take into account the fact that they could make sure that the things they want funded most can be — if it’s made a priority.
If you want to save up to take a family vacation in four months, then that should be your priority, and you should forgo eating out so often in order to help you reach your goal. Order your expenses from most important (don’t forget to include bills, premiums, and savings contributions) to least important. You can drop off the items on the bottom of the list without too much trouble.
Get Out of Debt
It’s best to avoid debt in the first place.
However, if you are in debt, you want to get out of debt as fast as possible. Create a plan to pay down your debt.
If you aren’t in debt right now, borrow as little as you can. Always borrow the smallest amount possible in order to avoid paying higher interest rates. You’ll be out of debt much faster, and owe a lot loss.
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Thanks
These are all wonderful common-sense basics. Too bad only 25% of the population has that quality.
Common sense is a strange thing these days anyway. What’s conventional thinking is changing in many ways.
But most personal finance basics are pretty universally sound.
Savings has always been a priority for me. When I retire (again), I will need to learn to spend. This will not be easy since I have been a saver my entire lifel.
No less than ABC News has pointed out the growing financial “illiteracy” crisis that is global in scope (back in February). Let’s hope that when we, as individuals, focus on the basics of financial literacy, our leaders – in America and abroad (especially countries like Greece, for example) will follow suit. Here in the U.S., perhaps too many of us expect too much of our state, local, and federal governments, without contemplating the long term costs.
Great basic tips that everyone should be reminded of! I really agree with the live within your means tip; or even better, live below your means! I earned a lot of money in my old job but when I switched to a lower paying job, I was able to swing it without too much pain – because I always lived below my means.